Huang Weimin, the hedge fund manager whose Chinese stock-index futures wagers returned more than 6,200 percent last year, has some advice for investors in 2016: Sell your shares now, before it’s too late.
Huang, who opened the Yourong Fund in 2014, says China’s benchmark Shanghai Composite Index could drop another 15 percent in the first half as slowing economic growth and a weaker yuan fuel capital outflows, Bloomberg News reported.
While he’s sticking with bearish futures bets to take advantage of further losses, he says the average Chinese stock investor would be better off shifting into cash.
“I’m not optimistic about this year,” said Huang, a self-taught trader who manages more than 100 million yuan (US$15.2 million) in the Yourong Fund and separate client accounts that use similar strategies.
“My advice is to hold cash, wait and watch.”
Many of China’s 99 million investors appear to be doing just that. Volumes in the nation’s US$5.6 trillion cash equities market slumped to the lowest level in three months last week, while trading of stock-index futures has dropped about 99 percent since June.
A bungled government attempt to introduce market circuit breakers in the first week of 2016 deepened investor pessimism after the mechanisms sparked panic instead of restoring calm.
Huang, 45, has become a star of the Chinese futures market after a slew of timely bets on the direction of share prices propelled his Yourong Fund to the top of the country’s performance rankings.
He’s carried the winning streak into 2016, returning 35 percent through Jan. 22 after selling stock-index futures just days before the market’s worst-ever start to a year.
Huang’s ability to profit from the turbulence has made him a standout in China’s hedge-fund industry, which has struggled to cope with price swings that reached the most extreme levels since 1997 last year.
More than 700 funds were forced to liquidate prematurely in 2015, and this year’s 18 percent slump in the Shanghai Composite has left many more on the brink of shutting down.
The Yourong Fund was the best performer last year among 310 private Chinese futures funds tracked by Shenzhen Rongzhi Investment Consultant Co.
Last year, Huang was bullish for much of the first half, building long positions in stocks and equity-index futures as the Shanghai Composite surged to seven-year highs.
After trimming his equity exposure in May, he bet against the market in the second half of June as shares tumbled.
When volatility increased at the end of that month, Huang turned to short-term wagers.
A short-term bet on Everbright Securities Co. Ltd. (601788.CN) that he sold the following day, for example, produced an 11 percent return on June 30 as the market posted a brief rally, he told Bloomberg News in an interview last week.
Aside from good timing, Huang’s outsized returns were made possible by the built-in leverage of futures.
The purchase or sale of a futures contract typically requires an initial deposit, known as margin, that’s just a fraction of the value of the underlying assets. That means even small price changes can lead to big profits — or losses — for holders of the derivatives.
Huang sees China’s stock market coming under pressure this year from both the economic slowdown and a potential surge in the supply of new shares.
However, there are signs that Chinese shares are poised for a rally. The Shanghai Composite’s relative strength index was 33 on Friday, near the threshold of 30 that some traders use as a signal of recovery.
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